1. Davis Tax Committee Carbon tax submission May 2015 www.pwc.com

2. PwC Agenda Key message Concerns Recommendations 2 May 2015Davis Tax Committee

3. PwC Key messages Carbon tax not appropriate in SA at this time. May have a role to play as a mitigation instrument in future But needs to align with other policy instruments and mitigation potential 3 May 2015Davis Tax Committee

4. PwC Concerns 4 May 2015Davis Tax Committee

5. PwC Concerns Timing Climate change is a global problem requiring a global solution SA 2009 commitments subject to financial and technological support Global agreement to be adopted 2015 and implemented 2020 Carbon emissions on track to meet 2020 commitment with no further action Carbon budget is SA’s primary mitigation instrument (NCCR White Paper) -Carbon tax intended to be support instrument (page 25) -Need to implement carbon budget as first step (2021) Impact on SA competitiveness and socio-economic implications -Complete and thorough understanding of impact required Administrative and compliance burden 5 May 2015Davis Tax Committee

6. PwC Concerns Scope Economy-wide scope NDP -Carbon tax to be implemented in flexible manner sensitive to employment and environmental impacts -Considerations: ◦Impact on sectors with limited mitigation potential and energy- intensive industries ◦Economic incidence of tax ◦Conditional exemption of electricity sector -Conditional exemptions for specific sectors -Introduction of carbon-pricing mechanism – 2015 -Economy wide extension of carbon tax – 2020 6 May 2015Davis Tax Committee

7. PwC Concerns Scope cont. Policy instrument overlap -Carbon budgets -IRP -Duplication of regulatory burden and mitigation costs 7 May 2015Davis Tax Committee

8. PwC Concerns Design Lack of clarity on proposed tax base -Greenhouse gases covered -Sources of emissions ◦Mobile combustion, process emissions, fugitive emissions -Who is liable? -Measurement of emissions ◦Alignment with mandatory reporting and carbon budgeting Allowance for trade-exposed sectors -Insufficient relief -Basis of determination using imports/exports flawed -No relief for scope 2 emissions 8 May 2015Davis Tax Committee

9. PwC Concerns Design cont. Process emissions relief -Sector coverage -Exemption? Offsets -Limits -Demand vs supply Revenue recycling -Lack of clarity -Track record 9 May 2015Davis Tax Committee

10. PwC Concerns Pricing Few developing countries have explicit carbon price Direct comparisons with other countries difficult -Floating rates -Exemptions and thresholds Proposed SA carbon price relatively high -EU +-€7 (R92) -China +-Yuan 30 (R57) -California +-$12.20 (R145) -Mexico +-R40 -Chile +-R60 (2018) -Ireland €20 (R260) -Japan $2 (R24) 10 May 2015Davis Tax Committee

11. PwC Recommendations 11 May 2015Davis Tax Committee

12. PwC Recommendations Postpone implementation to 2021 -Align with global agreement, including carbon price -Align with carbon budget instrument Exempt electricity sector -IRP primary mitigation instrument -Retain electricity levy to promote energy efficiency Apply to sectors/sub-sectors not covered by carbon budget Possibly apply to emissions > carbon budget Transparent economic modelling -Assumptions -Short/medium/long term economic impact by sector ◦Employment, GDP, balance of payments, exchange rate, investment, tax revenues, etc. 12 May 2015Davis Tax Committee

13. “South Africa should initially focus on pursuing those mitigation options that are likely to have the least regrets options, particularly around energy efficiency, that improve the competiveness of local industry, create jobs and represent a net saving rather than cost to the economy and gross domestic product” (NDP) Is the introduction of a carbon tax at this time in line with this statement? “The information contained in this publication by PwC is provided for discussion purposes only and is intended to provide the reader or his/her entity with general information of interest. The information is supplied on an “as is” basis and has not been compiled to meet the reader’s or his/her entity’s individual requirements. It is the reader’s responsibility to satisfy him or her that the content meets the individual or his/ her entity’s requirements. The information should not be regarded as professional or legal advice or the official opinion of PwC. No action should be taken on the strength of the information without obtaining professional advice. Although PwC take all reasonable steps to ensure the quality and accuracy of the information, accuracy is not guaranteed. PwC, shall not be liable for any damage, loss or liability of any nature incurred directly or indirectly by whomever and resulting from any cause in connection with the information contained herein.” © 2015 PwC Inc. [Registration number 1998/012055/21](“PwC”). All rights reserved. PwC refers to the South African member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see www.pwc.co.za for further details.